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Investment Meaning, Nature and

Scope: Decision Process


Investment
 In finance, the purchase of a financial product or other
item of value with an expectation of favorable future
returns. In general terms, investment means the use
money in the hope of making more money.
Objective of SAPM
 To improve decision-making skills in management of
investment through better understanding of modern
theories on portfolio management and functioning of
capital market.
 To get better return on portfolio with lesser risk
Nature and Scope of Investment Decision

 To understand various investment decision rules.


 To know what are the good investments decisions
rules.
 To know the category of investment decision rules.
 You can take investment decision only after
analyzing entire process of investment that starts with
funds contribution and ends with getting expectations
fulfilled.
Continue…
 The investment decision rules allow you to formalize
the process and specify what condition or conditions
need to be met to accept the project.
 You will take decision only after ensuring that the
required expectations in terms of returns are ensured at
any cost.
Decision Process
 Understand characteristics of good investment decision
rules.
 Decide basis of calculation of return based on required
condition.
 Use constrain to eliminate investment alternatives.
 Follow decision rules to accept or reject investment
opportunity.
Characteristics of Good Investment Decision Rules
 It should maintain a fair balance between allowing
manager to analyze the project and bring-in subjective
assessment into the decision and ensuring that different
projects are judged consistently.
 It must maximize the value of the firm and minimize
risk.
 It should work across a variety of investments.
Category of Investment Decision Rules
 Accounting Income-based decision rule
 Return on Capital
 Return on Equity
 Cash flow-based decision rule
 Cash Return on capital
 Cash Return on Equity